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(Reuters)
By Rafael Nam
HONG KONG (Reuters) - A 6 percent fall in Asia pushed world stocks to their lowest in 5- years on Thursday, while oil fell below $53 and safe havens such as the yen gained on fears the global recession and a financial crisis will get uglier.
European shares were also set to sink, with London's FTSE and Frankfurt's DAX seen posting opening losses that could top 2 percent.
Expectations that central banks may respond to the crisis with another wave of interest rate cuts helped push the two-year U.S. Treasury yield to a record low, while regional bond prices surged amid the market turbulence.
Investors are bracing for tough conditions ahead after the latest bearish signals for the global economy: The Federal Reserve slashed its U.S. growth forecasts, U.S. consumer prices fell at a record pace last month, and Japan's October exports fell by the most in seven years.
The bleak outlook, which is hitting sectors from U.S. auto makers to Asian chip makers, comes amid renewed worries about the financial system. Citigroup shares hit a 13-year low on Wednesday as investors questioned its survival amid mounting losses from credit cards, mortgages and toxic debt..
"Everybody is accepting the fact that we are in for a prolonged global recession and we are seeing a lot of pullbacks," said Lucinda Chan, a division director with Macquarie Equities in Australia.
Like dominoes, Asian markets fell a day after U.S. stocks hit their lowest in more than five years. The MSCI All-Country World Index was down 1.4 percent at 0700 GMT, having hit its lowest level since May 2003.
Japan's Nikkei average dropped nearly 7 percent, below the key technical level of 8,000 points for the first time in three weeks.
South Korean and Hong Kong shares tumbled more than 6 percent, while markets in Sydney, Bombay and Taiwan fell more than 4 percent each.
Shares in Singapore fell 3.5 percent, while Shanghai fell 1.8 percent. More broadly, the Asia-Pacific ex-Japan MSCI index was down 6.5 percent.
Expectations for a sharp slowdown in global growth sent oil down for a fifth consecutive session, with prices falling 87 cents to $52.70.
Oil on Wednesday fell to its lowest settlement since late January 2007 for a commodity that just in July hit a record high at about $147 a barrel.
STAYING SAFE
Investors are finding plenty to worry about. Federal Reserve officials on Wednesday pared their outlook for growth in the world's biggest economy to minimal levels and appear poised to cut interest rates further.
The weaker forecast came on a day in which data showed U.S. consumer prices in October posted their biggest drop since monthly records began in 1947, sparking concerns about a deflationary spiral.
The sharply weaker global growth bodes ill for Asian economies that need healthy overseas demand for their products. Japan on Thursday said exports logged their biggest annual decline in seven years in October.
Regional bonds were in demand as investors looked for relative safety. The 10-year Japanese government bond yield fell 3 basis points at 1.435 percent after dropping earlier to the lowest since early October.
Expectations that the Fed could cut rates next month by 50 basis points to 0.50 percent, the lowest since the 1950s, sent the two-year Treasury yield to a record low of 1.064 percent.
Risk aversion also kept the yen and the dollar firm on Thursday. Safe-haven capital flows have benefited the Japanese currency as investors, in times of stress, tend to sell assets financed with the cheaply-borrowed yen.
The dollar fell 0.5 percent from late U.S. trading on Wednesday to 95.21 yen. The euro slipped 0.4 percent to 118.98 yen.
(Additional reporting by Denny Thomas in SYDNEY and Annika Breidthardt in SINGAPORE; Editing by Dhara Ranasinghe)
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